NFP sector governance under the microscope

Friday, October 14th, 2011 - AICD

With the NFP sector contributing $43 billion to Australia’s GDP, the economic activity of the sector highlights the critical role of directors and governance to ensure it maintains vibrancy and effectiveness.

The study, conducted by the UNSW Centre for Social Impact on behalf of the Australian Institute of Company Directors, highlights the extensive contribution the director community is making to the NFP sector, not only in their role as directors, but also in areas that build capability, such as mentoring staff.

“This voluntary contribution is essential to organisations which often struggle with limited resources and funding,” said the CEO of the Australian Institute of Company Directors, John Colvin.

The study also examines corporate governance practices in NFP organisations compared to the for-profit sector.

The results bring into question the view held by the Federal Government, that governance of the NFP sector has failed to keep pace with the for-profit sector.

The study found that the time NFP non-executive directors spend in their role, the duties they perform and their level of ongoing education are broadly comparable to for-profit organisations.

Mr Colvin says while this is the case, there is a danger when making comparisons within the NFP sector and between the NFP and for-profit sectors.

“It is clear from the study that governance practices in the NFP sector are continuing to evolve, with a key influence being the experience that individual directors bring from their other director roles. The extent and value of such ‘cross-pollination’ should not be underestimated.”

“The NFP sector encompasses a wide range of organisational forms, missions, and activities of differing size and complexity. It is important not to apply a ‘cookie cutter’ mentality when designing a governance framework for the NFP sector. NFPs need to be able to tailor a set of governance arrangements to suit their individual circumstances, and adapt these arrangements over time as circumstances warrant,” he said.

Mr Colvin added that the study provides a timely reminder for government about the importance of good governance for the NFP sector, particularly during this period of reform.

“Any reforms need to be mindful of the significant numbers of volunteers working for NFPs, including directors, and regulatory changes should not discourage this contribution by imposing excessive regulation and compliance.”

Commonwealth Bank partnered with the Australian Institute of Company Directors in the Directors Social Impact Study 2011.